The regulation of the peer-to-peer lending business may have provided a sense of validity to the nascent lending industry, but caveats introduced by the central bank in the operational guidelines may severely cripple its growth prospectsPratik Bhakta | ET Bureau | October 07, 2017, 10:42 IST

The regulation of the peer-to-peer lending business may have provided a sense of validity to the nascent lending industry, but caveats introduced by the central bank in the operational guidelines may severely cripple its growth prospects, said P2P founders.

Multiple top executives of existing peer-to-peer (P2P) lending platforms ET spoke to, raised the red flag around exposure limits for lenders and borrowers, lack of clarity on the role of institutional lenders on such platforms, limited detailing of the recovery processes, and fixing of leverage ratio at 2. They fear that these issues could eventually drive potential investors out of this segment as well.

Limiting the exposure of lenders and borrowers to the P2P space to Rs 10 lakh would emerge as a major roadblock for the business and also hinder their growth, they said.

“The Rs 10-lakh limit for both borrowers and lenders is a major detriment to the sector as a whole, it is too low and should be revised upwards,“ said Sanjay Darbha, founder of Peerlend, a Hyderabad-based P2P startup. “Such low limits will push people to cash borrowings from expensive money lenders and defeat the entire purpose around P2P lending.“

Echoing similar fears, Shankar Vaddadi, founder of another P2P startup iLend, said high net-worth individuals with higher disposable corpus would be discouraged from participating in this sector in the wake of such limitations.

The industry says the regulator could have introduced caps on interest rates that could be charged on P2P platforms in order to protect the interests of borrowers, but a cap on total investments and borrowings would defeat the purpose of financial inclusion.

Besides, the industry is also confused around the idea of a leverage ratio of 2 as mentioned by the regulator. Since platforms are not lending themselves, the idea of a leverage ratio has been bewildering.

“The leverage ratio is to do with your debt and not lending on the platform; debt cannot be more than 2 times of the authorised capital, which means that the regulator is asking us to raise money through equity,“ said Rajat Gandhi, founder of Faircent.

Bhuvan Rustagi, co-founder of Lendbox, said that he was disappointed with the lack of clarity on the recovery process and how the platforms would ensure there's no harassment of borrowers during the recovery proceedings.